Transfer pricing generally refers to intercompany pricing arrangements for the transfer of goods, services and intangibles between associated persons. Ideally, the transfer price should not differ from the prevailing market price which would be reflected in a transaction between independent persons. However, business transactions between associated persons may not always reflect the dynamics of market forces. These Transfer Pricing Guidelines (hereinafter referred to as the Guidelines) are largely based on the governing standard for transfer pricing which is the arm`s length principle as set out under the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. Although some parts of the Guidelines have been adopted directly from the OECD Transfer Pricing Guidelines, there may be areas which differ to ensure adherence to the Income Tax Act 1967 (the Act) and Inland Revenue Board of Malaysia (IRBM) procedures as well as domestic circumstances.
The Guidelines are applicable on controlled transactions for the acquisition or supply of property or services between associated persons, where at least one person is assessable or chargeable to tax in Malaysia. To ease compliance burden persons referred to do not include individuals not carrying on a business, further-
(a) for a person carrying on a business, the Guidelines apply wholly to a business with gross income exceeding RM25 million, and the total amount of related party transactions exceeding RM15 million.
(b) where a person provides financial assistance, the guidelines on financial assistance are only applicable if that financial assistance exceeds RM50 million. The Guidelines do not apply to transactions involving financial institutions.